'2021 will be bad': $1.12 billion wiped off construction sector in June quarter

Australian building activity is continuing its downward slide and there is little hope budget construction stimulus will effectively turn the tide, experts say.

ABS data show the number of homes commenced fell 5.6 per cent from March to June, and 8 per cent year-on-year. In the June quarter, $1.12 billion worth less work was done than the previous period.

Analysts say this is what they thought would happen and that Australia’s construction pipeline will continue to dwindle in the coming years.

“Overall it’s pretty much in line with our expectations,” Macromonitor director Nigel Hatcher said. “On the residential side, you have total dwelling about 8 per cent down year-on-year which is what we were expecting in our forecasts.

“We had it 14 per cent down in the financial year 2019-20. It came down 13 per cent so that’s virtually no difference.”

While the pandemic began in March, its effect and that of stimulus measures were yet to be reflected in the ABS activity data.

“It’s not disastrous. But it is showing the start of the COVID impact,” Mr Hatcher said. “There won’t be much impact from HomeBuilder yet, but that may have more impact on the September and December quarters.”

Domain economist Trent Wiltshire said the downturn in activity had been locked in since the construction cycle came off its peak in the past couple of years.

“There’s been a downwards trend for a while. It wasn’t a big dip but if you look at the whole financial year, commencements are at their lowest point since 2012-13,” he said. “That’s when the building boom began the following year and ramped up. Its peak year was in 2017 or 2018.

“These stimulus measures are only going to soften this downturn that’s going to occur.”

Housing Industry Australia economist Angela Lillicrap said HomeBuilder and the Home Loan Deposit scheme would ease the slide for the time being, but couldn’t take the industry from its current course because it would bring forward demand and not create it.

“We’re not likely to see the same level of activity in the past five years,” she said. “That will always be an issue with incentives like this.

“We have seen a surge in sales and what we’re expecting in the coming months is that demand will ease off.”

Mr Hatcher said HomeBuilder and the loan scheme had the potential to make the numbers look worse in future.

“The downward trend will be improved slightly in the next couple of quarters. But that will come to an end and after that we’ll see a bigger decline than we would have otherwise,” he said. “2021 will be bad, a quite big downturn on our forecast.

“Our forecasts at the moment have a drop of 18 per cent next year, in 2021.”

Mr Wiltshire agreed. “Potentially, there could be even more of a decline that we thought next year,” he said.

Mr Wiltshire said the lack of international migration would also drive down activity, as the demand for houses was slashed by hundreds of thousands of units a year and that price declines would also have a compounding effect.

“It points to construction activity falling away quite substantially in the next couple of years,” he said. “The biggest driver in the falls is a drop in population growth driven by a net outflow of migration.

“Construction activity is also tied to what’s happening with prices which are heading down in Sydney and Melbourne. That weighs on the construction cycle.”